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Stabilization policy in an open-economy equilibrium model

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  • Lächler, Ulrich

Abstract

Whether the interests of a nation are best served by maintaining fixed exchange rates or by allowing exchange rates to vary continues to be a much debated issue among economists. Most of the earlier literature on this topic focused attention on the two extremes of completely fixed exchange rates versus the perfectly flexible or free floating system, examining the circumstances (degree of factor mobility, structure and origin of disturbances, etc.) under which one or the other would be preferred. More recently, several authors have adopted a different perspective by which the fixed and free float regimes are considered endpoints on a continuous spectrum of exchange rate flexibility (e.g. Boyer (1978), Frenkel and Aizenman (1982), Roper and Turnovsky (1980)). Undoubtedly, this view was stimulated by the move toward a system of managed floating among the major world currencies since 1973, where governments intervene in foreign exchange markets to varying extents, but not enough to peg the exchange rate.

Suggested Citation

  • Lächler, Ulrich, 1984. "Stabilization policy in an open-economy equilibrium model," Kiel Working Papers 197, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:197
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    References listed on IDEAS

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    1. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    2. Sargent, Thomas J. & Wallace, Neil, 1976. "Rational expectations and the theory of economic policy," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 169-183, April.
    3. Blanchard, Olivier Jean, 1979. "Wage Indexing Rules and the Behavior of the Economy," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 798-815, August.
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    5. Weber, Warren E, 1981. "Output Variability under Monetary Policy and Exchange Rate Rules," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 733-751, August.
    6. Frenkel, Jacob A. & Aizenman, Joshua, 1982. "Aspects of the optimal management of exchange rates," Journal of International Economics, Elsevier, vol. 13(3-4), pages 231-256, November.
    7. Herbert Giersch, 1973. "On the desirable degree of flexibility of exchange rates," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 109(2), pages 191-213, June.
    8. Boyer, Russell S, 1978. "Optimal Foreign Exchange Market Intervention," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1045-1055, December.
    9. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-254, April.
    10. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
    11. Don E. Roper & Stephen J. Turnovsky, 1980. "Optimal Exchange Market Intervention in a Simple Stochastic Macro Model," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 296-309, May.
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    Cited by:

    1. Foders, Federico, 1984. "The UN convention on the law of the sea: an inefficient public good supplied by an inefficient organization," Kiel Working Papers 204, Kiel Institute for the World Economy (IfW Kiel).

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